Volume 56: Riding this rocket to the moon!!!

1. The democratization of market manipulation.

tl;dr: Hedge funds feeling the heat they’ve dished to others for years.

As the pandemic unfolded in the first few months of 2020, a fascinating phenomenon was the explosive growth of account opening and trading activity on Robinhood and other zero fee trading platforms, driven by a combination of work from home boredom and a lack of sports betting as league’s around the world went on hiatus. They didn’t realize it at the time, but this bunch of bored sports betters and fantasy league players were about to start an anti-hedge fund movement.

Around mid-year, this began with a groundswell of semi-organized, semi-coordinated retail traders emerging on Reddit and TikTok, particularly the now (in)famous r/wallstreetbets sub-Reddit. After riding the Tesla wave to the top, one stock in particular caught their eye - Gamestop (GME). To very quickly summarize, Gamestop is a troubled retailer that hedge funds were hastening toward an early demise by massively shorting its stock. Shorting simply means betting the stock price will decline and reaping the profits when it does. What the Redditor’s figured out, however, was that Gamestop was being shorted to such a degree that the hedge funds doing so were sitting on an inordinate amount of risk were someone to bet against them and make the stock go up instead. They predicted, accurately it would seem, that Gamestop was an ideal candidate for what’s known as a short-squeeze. A short-squeeze is something that can only happen under some very specific conditions. There has to be a small enough amount of stock available to buy (the float) where co-ordinated behavior of a relatively small number of buyers can move the price, and there needs to be a lot of short positions held by others in the stock (Gamestop has consistently been 100%+ shorted). Overly simplifying, if someone enters the market, buys the stock and refuses to sell it, prices will rise. And if prices rise to a certain level, then short sellers will be forced to buy the stock in order to hedge against their losses, which creates a domino effect that makes the price go up even faster. Make 100%+ of short-sellers unwind all their positions at the same time and, well, you end up with a stratospheric and exponential lift in the price of the stock as all the domino effects kick-in.

To put this in perspective, the stock is up 700% in January alone. On Friday Gamestop opened at $44. As of today, less than a week later, it’s trading at $296.

This is a massive game of chicken between major Wall Street hedge funds on one side and a bunch of Redditor’s who refer to themselves as “retards riding this rocket to the moon!!!!!" on the other. And so far, the retards are winning bigly. Estimates are that hedge funds have lost at least $5bn, with one, Melvin Capital recently seeking an emergency injection of $3bn to cover its January losses.

Now, is this kind of semi co-ordinated activity among retail investors legal? As far as I can tell it’s borderline but probably, yes, kinda legal. But what’s most telling is the way the hedge funds are responding. You see, this is exactly the kind of behavior hedge funds themselves have pulled for years, where grey area market manipulation and borderline illegality have been praised as the hallmarks of the best and most aggressive capitalistic players. But now the boot’s on the other foot they’re kicking up a stink, claiming it’s unfair, that they’re being targeted, that they’re being threatened etcetera. What a load of old tosh. No doubt these arch capitalists will be seeking a government handout next.

And that’s the rub. This is a completely new phenomenon for some on Wall Street, where they’re being beaten at their own game and they don’t like it very much. For the first time, they’re facing the kind of digital disruption and consumer democratization powers that others have faced for years.

However, as fun as this is to watch, it won’t end well for many of the Redditor’s either. While some are undeniably becoming rich, many are using their life savings to engage in risky derivatives trading augmented by margin lending to double down their positions and they’re doing it with little or no idea of the scale of the consequences they face if the market turns against them. But that’s a story for another day.

Just for a moment, let’s take a little joy in bunch of average Joe sports betters on the internet making a lot of money at the expense of a few hedge fund billionaire’s. It probably won’t happen again for a very long time.

2. Responsibility is the new opportunity as trust dives amid raging “Infodemic.”

tl;dr: Edelman Trust Barometer makes for a grim read.

Recently, Edelman released their latest Trust Barometer report and it makes for a grim read. Trust in institutions is in freefall amid what they refer to as an “infodemic” exacerbated by our terrible “information hygiene” practices.

The result? People don’t know up from down and don’t know who or what to trust amid a barrage of dis and misinformation and lies big and small. (Which, in and of itself, is a subject for another time).

The one bright light amid a collapse of societal trust? Corporations. Even as trust in politicians and the media has plummeted, the response to the CV-19 crisis by corporations has led to an increase in trust in CEO’s and corporations of +2 points.

Now, let’s be absolutely clear. While this absolutely creates opportunity for corporations to leverage this trust and permission, it’s by no means a good thing for society overall. Having corporations be the last institution standing should be worrying for everyone. Not just because there’s a high likelihood that some of the more unscrupulous executive teams will abuse this trust, but because it reflects just how big a trust crisis exists in our broader society which faces major problems that, put simply, only government has the scale and resources to solve.

Anyway, this brings us to what Axios describes as the age of the “politician CEO.” Business leaders who are now being put into the position of having to take a political stance on issues, not by choice, but because people expect and trust them to tackle big societal issues.

Some brands like Patagonia, Nike and Ben & Jerry’s have taken this societal mantle and run with it in terms of advocacy and activism around issues. Moving forward, we’re going to see more of this, more broadly and more often, but for the majority of brands it will shift toward a form that’s markedly less activist and potentially controversial. For example, Anheuser Busch, which this week announced that instead of advertising Budweiser at the Super Bowl, they intend to apply their roughly $6m spend toward vaccine awareness and encouragement activities. While this may not at first glance look like an issues based political stance, it is if we consider the prevalence of anti-vaccine denial in the US. And for many of these deniers, it’s entirely possible they’ll trust Budweiser’s opinion ahead of that of government at any level, state or federal. Clearly this is enlightened self interest on the part of the Anheuser Busch company, which has a vested interest in widespread vaccinations, herd immunity, and a swift return to bars and restaurants.

Which brings me to my final point, we’re seeing a world where opportunity and responsibility have become intimately entwined. This means that while opportunities are potentially massive, they will increasingly come with a much greater degree of responsibility attached. Greater opportunities to solve big problems and make more money, but commensurately higher expectations not just in what is to be done, but how it is to be done, along with significant political minefields to be navigated.

It will be challenging, but those that get this right are going to win big as we begin to climb out of a pandemic shaped hole we’re currently in.

3. Because brand image, not in spite of it.

tl;dr: Mark Ritson is kinda right but not really.

I’ve written before about Marketing Week in the UK being ground zero for the smuggest opinion writers in the industry and, well, there’s none smugger than Mark Ritson. Thing is, while he’s insufferably smug about it, the things he says are often delightfully thought provoking and interesting.

Anyway, recently he wrote about how brands should be braver in their extensions because protecting their brand image doesn’t matter. The argument being that because brand image (what people think of you) matters almost not at all compared to brand salience (that they think of you at all), then brands have much more flexibility in how they choose to extend than they realize. To illustrate, he points out Ben & Jerry’s move into frozen dog treats, Porsche’s launch of the Cayenne, and Volvo being bought by a Chinese company.

Now, this is an argument that would appear to stem directly from the Australian marketing science school of thought, most famously espoused by Prof Byron Sharp. And while this school brings a lot to the table in terms of moving the brand and marketing conversation forwards, I must admit that I find it hard to agree with many of their more extreme conclusions.

In this case, while Mark is absolutely correct in his conclusion that brands should be braver in their extension choices, I’m in complete disagreement as to his analysis of why. It isn’t that brand image doesn’t matter, it’s precisely that these brands have built strong images that makes braver extensions more likely to succeed. Let’s look at two of his examples (I’m only looking at two because his Volvo example literally makes no sense and isn’t even worth talking about):

First, Ben & Jerry’s is an ice cream you treat yourself to. During the pandemic, dog adoptions have reached record highs and we think of our dogs as family members rather than as pets (hence the ridiculousness of referring to yourself as a dog parent at the vets). Meaning that it makes perfect sense to treat your furry family member to Ben & Jerry’s ice cream because it has the image of being a brand that you’d treat yourself with. It’s this image that is driving the salience and creating the conditions for dog treats to be a perfectly logical extension idea.

The Porsche Cayenne stemmed from the insight that there were people who wanted a Porsche-level performance car but couldn’t justify the impracticality of a Porsche 911 (especially people with families), so the image of Porsche as a performance brand immediately enabled them to corner a new market in performance SUV’s. It’s also unfortunate that the argument he makes here muddles up the brand, “Porsche” and the product, “911.” Had they released a 911 SUV, it would’ve likely been a genuine mistake, but because they were imbuing the image of the Porsche brand into an SUV without directly diluting or denigrating the 911 product, it was not.

This isn’t a small difference, it’s a key distinction. Your image, whether Australian marketing scientists can effectively measure it or not, matters. And the permission your image and salience together give you remains a largely untapped well of innovation for most brands.

So yes, please be braver in extending your brand. But not because your image doesn’t matter, but because the image you’ve so painstakingly built now has the potential to offer up all sorts of new value creating opportunities.